P.Bharath Kumar Reddy,, Kurnool vs Department Of Income Tax

This is an appeal by the Department against the order dated 25-10-2013 passed by Ld. Commissioner of Income Tax (Appeals)-IV, Hyderabad for the Assessment Year (AY) 2009-10.

2. The only effective ground raised by the Department is as under:

"2. The Hon'ble CIT(A) ought to have confronted the additional evidence of 'Cash book' to the Assessing Officer before entertaining the additional evidence".

3. Briefly the facts are, assessee is an individual. For the assessment year under consideration, assessee filed his return of income on 18-06-2009 declaring total income of Rs. 1,12,230/-. During the assessment proceedings, as noted by the Assessing Officer (AO), the I.T.A. No. 35/Hyd/2014 :- 2 -: P. Bharath Kumar Reddy

assessee was specifically asked to explain the source of the deposits appearing in SB A/c in ICICI Bank aggregating to Rs. 62.32 Lakhs. As noted by the AO, it was also made clear to the assessee that in case he fails to furnish the necessary information by 13-12-2011, the assessment would be completed exparte. However, since the assessee did not appear and furnish the required information explaining the source of deposits, the AO proceeded to complete the assessment on the basis of the material available on record. The AO by adopting the Peak Credit Method, arrived at a peak credit of Rs. 41,78,385/- in the bank account and treated it as unexplained credit u/s. 68 of the Income Tax Act (Act) and added it to the income of the assessee for the year under consideration. Being aggrieved of such addition, assessee filed appeal before the Ld.CIT(A). In course of hearing before First Appellate Authority, assessee submitted that he derives incomes from LIC commission and petty contract works. It was also submitted, he maintains two bank accounts one in ICICI Bank, Navarang Theatre Complex, Kurnool and another in SBI, TIF Campus, Kurnool. Assessee also submitted that in the course of assessment proceedings, the AO allowed a very short time for furnishing the information. As a result of which, assessee was unable to furnish them. However, before the First Appellate Authority, assessee furnished certain additional evidences to substantiate his claim that the deposits made in the bank accounts were from explained sources. Ld.CIT(A) on the basis of submissions made by the AO as well as the additional evidences submitted, called for a Remand Report from the AO. After perusing the Remand Report submitted by the AO as well as considering the submissions of the assessee vis-à-vis the facts and materials available on record, Ld.CIT(A) found a peak cash deficit of Rs. 6,20,945/- which could not be explained by the assessee. Accordingly, Ld.CIT(A) sustained addition u/s. 68 to I.T.A. No. 35/Hyd/2014 :- 3 -: P. Bharath Kumar Reddy

the extent of Rs. 6,20,945/- as against the addition of Rs. 41,78,385/- made by the AO.

4. Ld. DR submitted, existence of a second bank account in SBI was never disclosed by assessee before AO. He submitted, Ld.CIT(A) has accepted assessee's claim on the basis of cash book produced before her without giving an opportunity to the AO to verify, hence, order of CIT(A) deserves to be set aside.

5. Ld. AR on the other hand though strongly supported the order of Ld. CIT(A) but he agreed that matter can be remitted to the AO for verifying the peak cash deficit in the bank account arrived on the basis of cash book submitted before CIT(A).

6. We have considered the submissions of the parties and perused the materials on record. As can be seen, the sole grievance of the department is related to the consideration of additional evidence in the nature of Cash Book by the Ld.CIT(A) without allowing an opportunity to the AO to verify the same. On perusal of Ld.CIT(A)'s order it is seen in course of hearing, assessee explained that the deposits appearing in ICICI Bank account were from another bank account held by assessee in SBI. Further, explaining the source of deposits in SBI account, assessee had stated that amounts were received from his brother Shri P. Tejeshwar Reddy and one Parikshit Singh. To substantiate such claim, assessee has produced copies of his bank accounts along with the bank account of Shri P. Tejeshwar Reddy. Confirmation letters from concerned persons were also filed confirming transfer of money to assessee's bank account. Assessee also submitted statement analyzing the cash deposits made in the two bank accounts. All these evidences were forwarded to the AO for verification. It is also evident, on the basis of evidences produced by assessee, AO conducted enquiry with Shri P. I.T.A. No. 35/Hyd/2014 :- 4 -: P. Bharath Kumar Reddy

Tejeshwar Reddy and Parikshit Singh and after verification of their bank accounts submitted a remand report accepting the genuineness of the transactions, though, he observed that the total amount received by assessee from the concerned persons was Rs. 32,88,864/- as against deposits of Rs. 54,12,200/-, which still leaves unexplained balance of Rs. 21,23,336/-. When, the remand report was confronted to the assessee by Ld.CIT(A), he submitted a cash book, prepared on the basis of cash transactions in the two bank accounts, working out the peak cash deficit at Rs. 6,20,945/- as on 23-08-2008. Ld.CIT(A) on verifying the two bank accounts found the actual deposits made by assessee to be Rs. 42,33,100/- and not Rs. 54,12,200/- as stated by AO. Further, on the basis of cash book submitted by assessee Ld.CIT(A) concluded that unexplained credit which can be considered for addition is peak cash deficit of Rs. 6,20,945/- and not Rs. 21,23,336/- as worked out by AO in the remand report. In our view, before accepting the peak cash deficit of Rs. 6,20,945/- worked out on the basis of cash book, Ld.CIT(A) should have given an opportunity to the AO, to verify the same. Failure on the part of Ld.CIT(A) in doing so has resulted in violation of Rule 46A of the I.T. Rules, 1962. That being the case, we are inclined to set aside the impugned order of Ld.CIT(A) and remit the matter back to the file of AO for the limited purpose of verifying the peak cash deficit worked out as per the cash book and decide the issue accordingly after due opportunity of being heard to assessee.

7. In the result, department's appeal is allowed for statistical purposes.

Order pronounced in open Court on 8th May, 2015

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Hyderabad, Dated 8th May, 2015 TNMM I.T.A. No. 35/Hyd/2014 :- 5 -: P. Bharath Kumar Reddy

Copy to :

1. Income Tax Officer, Ward-2, Kurnool Aayakar Bhavan, Opp: Children's Park, N.R. Peta, Kurnool.

2. Shri P. Bharath Kumar Reddy, 87/574, Madhava Nagar, Kurnool.

3. CIT(Appeals)-IV, Hyderabad.

4. CIT-III, Hyderabad.

5. D.R. ITAT, Hyderabad